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FM AMEMBASSY KUWAIT
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INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
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UNCLAS SECTION 01 OF 08 KUWAIT 000107 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, STATE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: PGOV OPIC EINV KTDB USTR KU
SUBJECT: 2007 KUWAIT INVESTMENT CLIMATE REPORT SUBMISSION 
 
REF: 06 STATE 178303 
 
¶1.  Per reftel instructions, the following is Post's 
submission for the 2007 Kuwait Investment Climate Report: 
 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
The Council of Ministers approved the implementing 
regulations for its current Direct Foreign Capital Investment 
Law -- Law No. 8/2001, passed by the National Assembly on 
March 11, 2001 --, through Resolution No. 1006/1/2003 on 
November 1, 2003. The legislation authorizes foreign-majority 
ownership and 100 percent foreign ownership in certain 
industries including: infrastructure projects (water, power, 
waste water treatment or communications); investment and 
exchange companies; insurance companies; information 
technology and software development; hospitals and 
pharmaceuticals; air, land and sea freight; tourism, hotels, 
and entertainment; housing projects and urban development. 
Projects involving oil discovery or oil and gas production 
are not authorized for foreign investment and must be 
approved by a separate law. 
 
The Direct Foreign Capital Investment Law promotes foreign 
investment in Kuwait; authorizes tax holidays of up to ten 
years for new foreign investors; facilitates the entry of 
expatriate labor; authorizes land grants and duty-free import 
of equipment; provides guarantees against expropriation 
without compensation; ensures the right to repatriate 
profits; and protects the confidentiality of proprietary 
information in investment applications, with penalties for 
government officials who reveal such data to unauthorized 
persons.  New investors will be protected against any future 
changes to the law.  Full benefit of these incentives, 
however, will be linked to the percentage of Kuwaiti labor 
employed by the new venture.  The investor is also obliged to 
preserve the safety of the environment, uphold public order 
and morals, and comply with instructions regarding security 
and public health.  While the Direct Foreign Capital 
Investment Law is on the books, foreign companies still 
report numerous delays in getting approval to operate in 
Kuwait, and the law does not appear to have changed the 
investment climate in any significant way. 
 
Foreign firms still may not invest in the upstream petroleum 
sector, although they are permitted to invest in 
petrochemical joint ventures; Dow Chemical, a partner in 
EQUATE, is the only foreign company involved in a 
petrochemical joint venture.  Implementing legislation 
brought before Parliament in January 2004 would allow for 
limited, controlled investment in the petroleum sector.  This 
law was submitted specifically to allow for investment in and 
development of Kuwait,s northern oilfields, but may be used 
to allow for other investment in the petroleum sector in the 
future.  The legislation, however, is still pending and has 
not been brought to a vote in Parliament. 
 
Kuwait's economy has been dominated by the state and the 
nationalized oil industry since the early 1970s despite 
efforts by the government to diversify.  The government 
acquired major holdings in private Kuwaiti firms -- 
particularly banks and insurance companies -- following stock 
market crashes in 1979 and 1982.  After liberation from Iraq 
(early in 1991), the government passed a debt settlement law 
and purchased outstanding debts emanating from the stock 
market crashes and the Gulf War.  Between 1995 and 1998, the 
government successfully divested over 50 percent of its 
equity holdings in private firms by selling off its full 
holdings in 28 firms and portions of holdings in 17 other 
firms, earning some US $3.2 billion.  The program was 
suspended in 1998 because of the weakness of the Kuwait Stock 
Exchange, but resumed in May 2001 when the Kuwait Investment 
Authority sold 113 million shares (about 24 percent) of the 
Mobile Telecommunications Company (MTC).  There were six 
times as many prospective buyers as could be accommodated. 
The sale fulfilled the government's intention to reduce its 
equity in MTC from 49 percent to 25 percent. 
 
Established after the 1982 stock market crash, the Kuwait 
Stock Exchange (KSE) is the second largest bourse in the Arab 
world after Saudi Arabia's NCFEI.  The KSE lists 161 Kuwaiti 
companies and 18 companies from other Arab States, including 
one Iraqi company.  It reopened in 1992 following the Gulf 
War and has a market capitalization of USD 131.2 billion (KD 
38.2 billion) as of December 2006, an increase of 7% from 
¶2005.  KSE boasts the region,s first trading floor for women 
and is in consultations with a British firm on establishing a 
 
KUWAIT 00000107  002 OF 008 
 
 
Capital Markets Authority to serve as an independent 
regulatory body similar to the U.S. Securities and Exchange 
Commission. 
 
The National Assembly ratified the "Indirect Foreign 
Investment Law" in August 2000, allowing foreigners to own 
100 percent of all listed shareholding companies, except 
banks.  The banking sector was opened under the Direct 
Foreign Investment Law and the Central Bank has already 
granted licenses to three foreign banks; BNP Paribas and 
HSBC, both of which began operations in 2005, and Citibank, 
which began operations in 2006.  However, while foreign banks 
may now operate in Kuwait, they are restricted to opening 
only one branch and are prohibited from competing in the 
retail banking sector.  Kuwait,s banking sector is regulated 
by the country's effective Central Bank and is comprised of 
Islamic, specialized, and commercial banks.  With the 
conversion of Kuwait Real Estate Bank (KREB) in 2006, there 
are now three Islamic banks including Kuwait Finance House 
(1977) and Bubyan Bank (2004).  KREB,s conversion leaves one 
remaining specialized bank, the Industrial Bank of Kuwait. 
The seven commercial banks include National Bank of Kuwait 
(1952), Commercial Bank of Kuwait (1960), Gulf Bank (1960), 
Al-Ahli Bank of Kuwait (1967), The Bank of Kuwait and the 
Middle East (1971), Burgan Bank (1976) and Branch Bank of 
Bahrain and Kuwait (1977). 
 
On July 9, 2001, the Kuwaiti government announced an 
ambitious five-year privatization program, which closely 
resembled past initiatives.  The plan outlined a wide range 
of activities, but with little detail.  The first year called 
for privatizing some gas station outlets and part or all of 
Kuwait Airways, which has operated at a loss since 2000. 
Year two would initiate privatization of post office, 
telegraph, and telecommunication services.  Years three and 
four would complete the telecommunication privatization and 
initiate the privatization of the Ports Authority and Public 
Transport Company.  The fifth and final year targeted the 
power and water sectors, as well as Kuwait's Petrochemical 
Industries Company (PIC).  Kuwait,s National Assembly has 
made clear that any privatization program will have to 
insulate consumers from significant rate increases and 
protect the jobs of Kuwaiti employees.  Little of the 2001 
five-year plan has been implemented.  Kuwait Airways, which 
is still a government entity, continues to operate at a 
significant loss and now faces direct local competition from 
the new, private Jazeera Airways.  Another private airline, 
Al-Wataniya, was licensed and formed in 2005, but has not yet 
begun operations.  Both mobile telephone companies in Kuwait 
are private, with the Government holding significant minority 
interest, and the Ministry of Communication still sets 
tariffs, which are high.  None of the other communication 
services have yet been privatized, though privatizing 
landlines has been discussed for several years.  The ports 
and transport sector have not been privatized either.  The 
energy and power sector has seen the most progress in 
privatization.  Forty of the 120 government-owned gas 
stations have been privatized, with plans to privatize the 
rest in two additional rounds.  The outcome will be three 
competing gas station companies, with gas still subsidized by 
the government and set in a price range.  The 
government-owned lubrication oils plant was privatized in 
2004 as were the coke smelter operations.  Kuwait,s PIC is 
now operating a joint private venture with Dow Chemicals 
called Equate, and the operation has proven to be a 
successful, profitable model of both privatization and 
foreign investment.  On the heals of Equate,s success, Dow 
and the Petrochemical Industries Corporation (PIC) have 
formed two more ventures which have already been tendered: a 
second olefins plant and an aromatics facility which are both 
under construction and due to come on-line in 2008. 
 
Build, Operate and Transfer (BOT) projects are gaining 
increasing acceptance in Kuwait, with BOT projects proposed 
in the power, wastewater, real estate development and 
transport sectors.  After nearly four years of deliberation, 
the Sulaibiya Waste Water Treatment BOT contract was signed 
in May 2001.  The winning consortium, which included U.S. 
firms, projected revenues of US $390 million over 10 years. 
The project, which was commissioned in 2004, now processes 50 
million gallons of wastewater daily to be used for 
irrigation.  BOT projects came under intense scrutiny by the 
State Audit Bureau in late 2006 for alleged violations, 
however, and several contracts were canceled. 
 
There have also been selected real estate BOT projects by 
privately owned Kuwaiti companies.  The first-class US $132 
million Sharq Mall, owned by the National Real Estate 
 
KUWAIT 00000107  003 OF 008 
 
 
Company, contains retail outlets, restaurants, theaters, and 
entertainment concessions.  More recently, the Fifth 
Waterfront Development Project constructed Marina Mall.  This 
US $162 million BOT is owned by the United Realty Company and 
features high-end retail, eating, and entertainment outlets. 
A future BOT is planned for a central incinerator in the 
Shuaiba Industrial Area, a project that stipulates foreign 
participation with at least 25 percent equity. 
 
Foreign-owned firms and the foreign-owned portions of joint 
ventures are the only businesses subject to corporate income 
tax, which applies to both domestic and offshore income. 
Corporate tax rates can be as high as 55 percent of net 
profits, but the government has drafted legislation to reduce 
the maximum rate to 15 percent.  New foreign investors can be 
exempted from all taxes for up to 10 years under the new 
Direct Foreign Capital Investment Law. 
 
Kuwaiti firms are not subject to the corporate income tax, 
but those registered on the Kuwait Stock Exchange 
(shareholding companies) are required to contribute 2.5 
percent of their national earnings to the Kuwait Foundation 
for the Advancement of Science (KFAS).  The National 
Employment Law levies an additional 2.5 percent tax that will 
fund a program granting Kuwaitis working in the private 
sector the same social and family allowances provided to 
Kuwait's government workers.  Kuwait levies no personal 
income tax. 
 
Tax exclusions -- besides those offered under the new Direct 
Foreign Capital Investment Law -- for business expenses are 
limited, and Kuwait's tax code is often ambiguous.  For 
example, deductions are only three percent for agent 
commissions and head office expenses (mainly for turnkey 
supply and installation-type contracts).  The most 
significant tax ambiguity exists in terms of defining foreign 
companies, taxable presence in Kuwait, and several foreign 
firms are engaged in ongoing disputes over their tax 
liabilities. 
 
The licensing authority of the Ministry of Commerce and 
Industry screens all proposals for direct foreign investment. 
 In the past, this authority has encouraged high-tech 
industries over sectors viewed to be saturated, such as the 
hotel industry.  The Foreign Capital Investment Committee 
(FIC), chaired by the Minister of Commerce and Industry and 
including representatives from the private and public 
sectors, will authorize investment incentives put forth under 
the new Foreign Investment Law on a case-by-case basis. 
Foreign companies have reported numerous delays in gaining 
authorization, some waiting up to 18 months for approval. 
 
CONVERSION AND TRANSFER POLICIES 
 
After 27 years of linking the Kuwaiti dinar (KD) exchange 
rate to a basket of currencies, Kuwait decided to peg the 
dinar to the US dollar under a flexible peg from the 
beginning of 2003. The move is in preparation for the 
adoption of a single GCC currency in 2010. The Central Bank 
of Kuwait (CBK) will retain a band of plus or minus 3.5 
percent in order to ensure a smooth evolution of the historic 
behavior of the KD that has traded within the specified band 
since 1991. Since 1997, the KD has fluctuated within a 3 
percent band against the dollar*.  There are no restrictions 
on current or capital account transactions in Kuwait beyond 
the requirement that all foreign exchange purchases be made 
through a bank or licensed foreign exchange dealer.  Equity, 
loan capital, interest, dividends, profits, royalties, fees 
and personal savings can all be transferred in or out of 
Kuwait without hindrance.  Under the current Foreign 
Investment Law, investors are also permitted to transfer all 
or part of their investment to another foreign or domestic 
investor. 
 
*Source: National Bank of Kuwait Economic & Financial Review, 
June 2003. 
 
EXPROPRIATION AND COMPENSATION 
 
There have been no recent cases of expropriation or 
nationalization involving foreign investments in Kuwait. 
Nevertheless, as a safeguard, the Direct Foreign Capital 
Investment Law guarantees against expropriation or 
nationalization except for the public benefit in accordance 
with existing laws; in this case, compensation will be 
provided without delay for the "real economic value of the 
project at the time of expropriation."  When foreign 
companies were nationalized in the past, as with Kuwait's oil 
 
KUWAIT 00000107  004 OF 008 
 
 
industry in the 1970s, foreign interests were compensated 
promptly and effectively. 
 
DISPUTE SETTLEMENT 
 
The Foreign Investment Law stipulates that Kuwaiti courts 
alone are responsible for adjudicating any disputes involving 
a foreign investor and other parties, although arbitration is 
permitted. Few contracts in Kuwait contain clauses specifying 
recourse to traditional commercial and political arbitration. 
 According to the Central Bank of Kuwait, the Kuwaiti 
judicial system recognizes and enforces foreign judgments 
only when reciprocal arrangements are in place. Kuwait is a 
signatory to the International Center for the Settlement of 
Investment Disputes (ICSID, i.e. the Washington Convention). 
There have been no investment disputes involving American 
firms in Kuwait in over five years; commercial disputes are 
more common.  In both cases, the slow pace of Kuwait,s legal 
system often frustrates American claimants. 
 
Kuwait has a developed legal system and a strong trading 
history.  It has a civil code system influenced by Islamic 
law.  As a traditional trading nation, Kuwait,s judiciary is 
familiar with international commercial laws.  Kuwait has been 
a GATT member since 1963 and has signed the WTO agreement. 
Kuwait, however, is not a signatory to the WTO Government 
Procurement Code. 
 
A feature of Kuwaiti law which U.S. business should be aware 
of is the application of travel bans which may be applied 
against individuals who have civil or criminal cases 
registered against them.  The ban prevents individuals from 
departing Kuwait until the pending matter is settled or 
acceptable guarantees are offered.  Former Kuwaiti business 
partners involved in disputes with U.S. businesses have 
managed to have travel bans imposed on U.S. partners for 
allegedly violating Kuwaiti civil law. Though very 
infrequent, such cases highlight the need to take extra care 
before entering into long-term business relationships in 
Kuwait. 
 
PERFORMANCE REQUIREMENTS/INCENTIVES 
 
Government Procurement Requirements 
 
Law No. 37 of 1964 (Articles 43 and 44) specifies the use of 
local products when available and prescribes a 15 percent 
price advantage for local firms in government tenders. 
 
Boycotts 
 
In June 1993, Kuwait publicly announced its decision to end 
enforcement of the secondary and tertiary Arab League 
boycotts of Israel.  Although there are occasional reports 
that some tender requests contain boycott clauses reportable 
under U.S. anti-boycott laws, these usually result from 
clerical errors or the use of outdated forms.  Kuwait 
maintains an open boycott office in its Customs Department, 
and has stated that it will wait for Arab League action 
before eliminating the primary boycott of Israeli-owned 
companies and goods produced in Israel. 
 
Shipping Requirements 
 
The Kuwaiti government has insisted that cargoes for 
government projects originating in U.S. ports will no longer 
be prevented access in favor of the United Arab Shipping 
Program. 
 
Participation in Research and Development 
 
There are no specific restrictions on foreign participation 
in government-financed or subsidized research and 
development, but little activity of this kind has occurred to 
date.  The Kuwait Institute for Scientific Research (KISR) 
has expressed interest in working with foreign firms.  The 
government would welcome programs that provide expertise 
unavailable locally, but these are likely to be evaluated on 
a case-by-case basis. 
 
Visa and Work Permit Requirements 
 
Kuwait has a stringent visa regime and most work permits 
require a local sponsor.  The Foreign Investment Law, 
however, may redress this problem for new investors. 
Reciprocal changes between the U.S. and Kuwait--particularly 
the introduction of a 10-year multiple entry visa--have 
benefited U.S. business travelers.  Visa requirements for 
 
KUWAIT 00000107  005 OF 008 
 
 
citizens of 34 nations, including the United States, were 
relaxed in 2004 allowing for application for a visa upon 
arrival at the airport.  However, investors should be aware 
that as of August 2006, persons entering on tourist visas 
will no longer be able to convert to work permits without 
first leaving the country.  Foreign-born U.S. citizens, 
especially those of Middle Eastern descent, sometimes 
experience difficulties with visa and residency applications. 
 Any problems experienced by potential U.S. visitors should 
be referred to the American Embassy or to the Bureau of 
Consular Affairs, Department of State. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
Rights to private ownership and establishment are respected 
in Kuwait, although foreigners face selected restrictions. 
Licenses from the Ministry of Commerce and Industry are 
required for the establishment of all new companies, and 
government authorization is required for any incentives 
offered by the new Foreign Investment Law.  As stated above, 
foreign ownership is restricted or prohibited in some sectors 
of the economy, and non-GCC citizens may not own land in 
Kuwait. 
 
Kuwaiti law severely restricts the types of collateral to 
which creditors may have recourse in the event of default by 
a borrower.  Banks may not foreclose on residential real 
estate property or personal possessions in the event of 
default, although they may sue the borrower for the balance 
due under the loan contract.  Borrowers typically pledge a 
portion of their future severance benefits as collateral for 
a bank loan. 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
 
Kuwait has not developed effective antitrust laws to foster 
competition, and its bureaucracy often resembles that of a 
developing country.  Kuwait's open economy has generally 
promoted a competitive market.  When government intervention 
occurs, however, it is usually to the benefit of Kuwaiti 
citizens and Kuwaiti-owned firms. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
 
Kuwait has a free, but inefficient, capital market where 
credit is allocated on market terms.  Foreign investors can 
obtain credit through local banks.  With the help of 
government subsidies, the financial markets -- and 
particularly the commercial banks -- operated throughout the 
1980s primarily to collect funds for the re-lending to 
favored customers.  Payment discipline was lax and real 
economic losses common.  Under a bank stabilization program 
introduced in 1992, the Central Bank of Kuwait purchased all 
of the outstanding domestic credits of Kuwait's commercial 
banks while eliminating all guarantees for profits, equity, 
and liabilities other than the banks' deposit liabilities. 
Henceforth, all losses would stay with the banks, which would 
be responsible for the management of all their assets and 
liabilities.  In addition, the Central Bank improved bank 
supervision, resulting in a fairer and more efficient 
distribution of credit throughout the Kuwaiti banking system. 
 Each of Kuwait's six commercial banks reported continued 
earnings growth in 2005. 
 
BANK ASSETS 
Kuwait,s banks have not yet released their 2006 annual 
reports.  The assets of Kuwait's commercial banks on December 
31, 2005 were: (in '000s) 
 
National Bank of Kuwait 
KD 6,200,000 (USD $21,205,841) 
 
Gulf Bank 
KD 2,608,000 (USD $8,962,199) 
 
Commercial Bank of Kuwait 
KD 2,343,000 (USD $8,051,546) 
 
Al-Ahli Bank 
KD 2,008,000 (USD $6,900,343) 
 
Burgan Bank 
KD 2,297,000 (USD $7,893,470) 
 
Bank of Kuwait and the Middle East 
KD 1,884,000 (USD $6,474,226) 
 
(US $1 equals KD 0.291 as of Jan. 1st, 2006-CBK) 
 
KUWAIT 00000107  006 OF 008 
 
 
 
The quality of local banks varies from blue chip, world-class 
to weak.  Some bank assets have been non-performing in the 
past.  The balance sheets of some local banks are heavily 
weighted toward lower-yielding government bonds.  Legal, 
regulatory, and accounting systems are opaque but are 
generally consistent with international norms.  The Central 
Bank of Kuwait requires annual reports from local banks to 
meet international accounting standards.  U.S. businesspeople 
are advised to seek local legal and financial advice for 
complicated investments and transactions. 
 
There are few defensive measures to protect against hostile 
takeovers, which are rare in Kuwait. There is no evidence of 
private sector or government efforts to restrict foreign 
participation in industry standards-setting consortia or 
organizations.  U.S. suppliers often have trouble, however, 
complying with specifications that are 
technologically-tailored to other (usually European, 
especially U.K.) suppliers.  In addition, American suppliers' 
preference for turnkey projects often does not mesh with 
Kuwait's preference to split projects into a series of 
separately-tendered smaller projects. 
 
Finally, U.S. investors should be aware that family, clan, 
and tribal ties throughout the business community and 
government can restrict foreign participation, investment, 
and control of domestic enterprises.  Kuwait is a very big 
small town. 
 
POLITICAL VIOLENCE 
 
Politically Motivated Damage to Projects and/or Installations 
 
With the potential for terrorist actions throughout the 
Persian Gulf region still high, the Government of Kuwait 
continues to strengthen domestic counterterrorism measures. 
There have not been any incidences of terrorism in Kuwait 
since January 2004, and the government has aggressively 
pursued convictions against members of a local terrorist cell 
involved in confrontations with Kuwait security forces in 
January 2005.  Kuwait also significantly increased security 
around key oil installations after Al-Qaeda threatened to 
attack Gulf oil facilities. 
 
CORRUPTION 
 
The often-lengthy procurement process in Kuwait occasionally 
results in accusations of attempted bribery or the offering 
of other inducements by foreign bidders.  This is a crime in 
Kuwait and there are currently several investigations and 
trials underway involving current or former government 
officials accused of malfeasance.  There have been no 
convictions for bribery, however, since the end of the Gulf 
War.  In 1996, the government passed Law No. 25, which 
requires all companies securing contracts with the government 
valued at KD 100,000 (US $336,000) or more to report all 
payments made to Kuwaiti agents or advisors while securing 
the contract.  The law similarly requires entities and 
individuals in Kuwait to report any payments they received as 
compensation for securing government contracts. 
 
BILATERAL INVESTMENT AGREEMENTS 
 
Kuwait has signed investment agreements with Germany, France, 
Italy, Russia, China, Romania, Poland, Hungary, Turkey, 
Malaysia, Pakistan, Switzerland, Malta, Finland, Ethiopia, 
Croatia, Tajikistan, Austria, Bulgaria, Kazakhstan, Morocco, 
Mongolia and the Czech Republic.  In the past few years, 
Kuwait has signed a bilateral investment agreement with 
Pakistan and a free trade agreement (FTA) with Jordan. 
Kuwait has initialed agreements on bilateral investment with 
Denmark, Belgium, the Netherlands, Thailand, Ukraine, Latvia, 
Lithuania, Lebanon, Bosnia/Herzegovina, and India.  Kuwait 
began talks with Singapore on a Free Trade Agreement in 
December 2004. 
 
Trade and Investment Framework Agreement 
 
Kuwait signed a trade and Investment Framework Agreement 
(TIFA) with the United States in February 2004.  The TIFA is 
the first step in developing economic reform and trade 
liberalization criteria to strengthen the U.S. ) Kuwait 
economic relationship and to work toward an eventual Free 
Trade Agreement.  At the first bilateral TIFA Council 
meeting, held in May 2004 in Washington, D.C., it was agreed 
that the TIFA process would provide for periodic technical 
discussions.  Several areas in particular stood out as 
 
KUWAIT 00000107  007 OF 008 
 
 
needing further attention:  intellectual property rights 
(IPR), standards-related issues, taxation, and service and 
investment requirements.  Technical experts on both sides 
continue to work on these areas.  Technical discussions took 
place in February 2006, followed by a formal TIFA Council 
meeting in September 2006 in Washington, D.C.  While Kuwait 
has made notable progress on IPR protections (including an 
upgrade to the Watchlist on the 2005 Special 301 Report), 
Kuwait,s taxation practices and standards regime continue to 
be significant problems. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
In 1989, Kuwait concluded an agreement with the U.S. on 
investment guaranty programs, which facilitated the extension 
of programs from the Overseas Private Investment Corporation 
(OPIC) to Kuwait.  Kuwait is also a member of the 
Multilateral Investment Guarantee Agency (MIGA).  Currently 
there are no OPIC programs in Kuwait. 
 
LABOR 
 
Kuwait has a diverse labor force.  Kuwaiti nationals occupy 
most of the top management positions in the private and 
government sectors.  Due to a welfare system that includes 
guarantees for government jobs, unemployment among Kuwaitis 
is less than two percent, but it is rising as a result of a 
growing influx of young Kuwaitis into the labor force (20,000 
to 25,000 annually).  The new entrants are reluctant to enter 
the private sector and cannot be absorbed by the government, 
where underemployment remains a serious problem.  Kuwaitis 
are outnumbered in the work force by expatriate laborers of 
diverse backgrounds.  While there are a number of American 
and Western European workers in Kuwait, particularly in 
high-skilled positions, the vast majority of expatriate 
workers are low paid laborers from other Middle Eastern 
countries, South Asia, and the Philippines.  Prior to the 
Gulf War (1991), Palestinians occupied many of the country's 
middle-management positions.  Since the war, workers of other 
nationalities, often Egyptians or South Asians, have filled 
most of these positions. Since liberation, the Government of 
Kuwait has adopted inconsistent policies intended to limit 
and discourage growth of the resident expatriate population. 
The government has instituted a quota system on work permits 
designed to protect workers by preventing Kuwaitis from 
importing unnecessary workers and then leaving those workers 
on the street.  Unskilled foreign workers are restricted from 
transferring from one sponsor to another within the private 
sector for a minimum of two years, but college graduates may 
transfer after one year.  The government has also levied new 
fees on expatriate workers and their families in order to 
raise the cost of employing foreign workers.  At the same 
time, however, the government has reduced the minimum salary 
required for expatriates (in some business categories) to be 
eligible to bring their dependents to Kuwait, lowering it 
from 400 KD a month to 250 KD a month. 
 
Kuwaiti workers have the right to organize and bargain 
collectively, but Kuwaiti law prevents the establishment of 
more than one union per functional area or more than one 
general confederation.  Foreign workers, who constitute the 
vast majority of the work force, are permitted by law to join 
unions only as non-voting members after five years of work in 
the particular sector the union represents..  The right to 
strike is also recognized for private sector workers, 
although provisions calling for compulsory negotiation and 
arbitration in the case of disputes limit that right. 
Kuwaiti labor law prohibits anti-union discrimination. 
 
Separate Kuwaiti labor laws set work conditions in the public 
and private sectors, with the oil industry treated 
separately.  Forced labor is prohibited and the minimum age 
for employment is 18 years in industrial or dangerous jobs.. 
Youths as young as 14, however, may work part-time in some 
non-industrial positions, and are allocated more breaks than 
adults.  A two-tiered labor market ensures high wages for 
Kuwaiti employees while foreign workers, particularly 
unskilled laborers, receive substantially lower wages.  In 
the private sector, the minimum wage is 40 KD per month;; in 
the public sector, the current effective minimum wage is KD 
226 (US $741) per month for Kuwaiti bachelors and KD 301 (US 
$987) per month for married Kuwaitis--compared to KD 90 (US 
$295) for non-Kuwaitis.  The basic labor law also limits the 
workweek to 48 hours, provides for a minimum of 14 days of 
leave per year, which increases to 21 days after five years 
in the same job, and establishes a compensation schedule for 
industrial accidents.  However, the law is inconsistently 
enforced and disputes over the payment of salaries and 
 
KUWAIT 00000107  008 OF 008 
 
 
contract-switching are common, especially among unskilled 
workers.  Current labor laws do not apply to domestic 
servants. The State Department's annual Human Rights Report 
and Trafficking in Persons Report highlight the vulnerability 
of domestic servants to exploitation.  In 2006, the Ministry 
of Interior implemented a new mandatory contract for all 
domestic workers that specifies daily, weekly, and annual 
rest periods, although it does not specifically limit working 
hours.  New regulations also outlaw the passing 
administrative fees to workers.  These new rules became 
effective October 1, 2006, so effective enforcement is still 
an open question. 
 
The International Labor Organization's (ILO) Committee of 
Experts has reiterated its long-standing criticisms of the 
discrepancies between the Kuwaiti Labor Code and ILO 
Conventions 1, 30, and 87 regarding hours of work and freedom 
of association.  Areas criticized by the ILO include the 
prohibition to establish more than one trade union for a 
given field; the requirement that a new union have at least 
100 workers; the regulation that workers must reside in 
Kuwait for five years before joining a trade union; the 
denial of the right to vote and to be elected for foreign 
trade unionists; the prohibition against trade unions 
engaging in any political or religious activity; and the 
reversion of trade union assets to the Ministry of Social 
Affairs and Labor in the event of dissolution.  A new labor 
law, which would award private sector workers more benefits, 
establish a minimum wage, and broaden rights to establish 
unions has been endorsed by the Council of Ministers but has 
not yet been referred to the Parliament for approval. 
 
FOREIGN TRADE ZONES AND FREE PORTS 
 
In July 1995, the National Assembly passed Law No. 26 
authorizing the Ministry of Commerce and Industry to 
establish free trade zones in Kuwait.  In May 1998, the 
privately-owned National Real Estate Company signed a 
contract with the Ministry to operate, manage, and market the 
50 square-kilometer Kuwait Free Trade Zone (KFTZ) at Shuwaikh 
port, which was inaugurated in November 1999.  Many 
restrictions faced by foreign firms, such as corporate taxes, 
do not apply to offices or plants within the KFTZ.  Some 90 
percent of space within the KFTZ has been leased; the 
majority of firms operating in the zone are Kuwaiti. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
 
Kuwaiti public investments abroad consist of portfolio 
investments held by the Kuwait Investment Authority, direct 
investments of other government entities, as well as those 
held by private Kuwaitis.  The amount of investments of the 
KIA is a state secret, but is estimated at more than US $80 
billion.  Details about non-KIA investments -- such as the 
Kuwait Petroleum Corporation's interests in oil production, 
refining, and distribution -- are equally opaque.  The 
holdings of private Kuwaitis, in both direct and portfolio 
investments, are believed to approximate US $100 billion. 
Other major investors in Kuwait include the Japanese-owned 
Arabian Oil Company, which holds the Kuwaiti offshore 
concession in the Partitioned Neutral Zone (PNZ), and Dow 
Chemical, which has a 45 percent stake in the US $2 billion 
EQUATE project, a petrochemical joint venture with the 
Petrochemical Industries Company (PIC) that began operation 
in 1997.  (Although the U.S.-owned Saudi Arabian Texaco is 
headquartered on the Kuwait side of the PNZ, it operates 
under a Saudi concession for Saudi Arabia's share of the 
onshore oil resources in the PNZ.) 
 
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For more reporting from Embassy Kuwait, visit: 
http://www.state.sgov.gov/p/nea/kuwait/?cable s 
Visit Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
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LEBARON